IRS Taxpayer Bill of Rights Now Available in 6 Languages

Biology Book Shows Education And LearningOn August 12, 2014, the IRS announced that the “Taxpayer Bill of Rights” is now available in six languages.  The current version of Publication 1, Your Rights as a Taxpayer, is now posted on www.IRS.gov.  The available languages include: English, Spanish, Chinese, Russian, Korean and Vietnamese.  By making this important publication available in multiple languages, the hope of the IRS is to increase the number of Americans who know and understand their rights under the tax law.

Not only is the Taxpayer Bill of Rights now available in multiple languages, but the newest revision also takes the multiple existing rights embedded in the tax law and groups them into ten broad categories.  This makes them easier to find and understand.

The Taxpayer Bill of Rights contains the following 10 provisions:

  1. The Right to be Informed;
  2. The Right to Quality Service;
  3. The Right to Pay No More Than the Correct Amount of Tax;
  4. The Right to Challenge the IRS’s Position and to Be Heard;
  5. The Right to Appeal an IRS Decision in an Independent Forum;
  6. The Right to Finality;
  7. The Right to Privacy;
  8. The Right to Confidentiality;
  9. The Right to Retain Representation;
  10. The Right to a Fair and Just Tax System.

The IRS has created a special section within the website, www.IRS.gov, to highlight these 10 rights.  Similarly, the website will be continuously updated as more information becomes available.

This blog brought to you by TaxLane, LLC, providing tax preparation and consulting services to individuals and small businesses.

Pittsburgh, Allison Park, Hampton, Shaler, Glenshaw.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.

IRS Repeats Warning About Phone Scams

fraud, scam, theftThe Internal Revenue Service and Treasury Inspector General for Tax Administration (“TIGTA”) are still receiving complaints from taxpayers about unsolicited calls from people claiming to be from the IRS and demanding payment.  The TIGTA has identified approximately 1,100 victims who have lost a total of $5 million from these scammers.

Here are a few things taxpayers should know about the IRS that can help you recognize a scam:

  • The IRS will NEVER ask for credit, debit or prepaid card information over the phone;
  • The IRS will NEVER insist that you use a specific type of repayment to pay tax obligations;
  • The IRS will NEVER request immediate payment over the phone and will not take enforcement action immediately after a phone conversation.

Taxpayers who receive these calls may be told that they owe money that must be paid immediately or that they are entitled to a large refund.  If unsuccessful the first time, scammers may call back and try a different method.

Here are some other typical characteristics of a scam:

  • Scammers will use fake names and IRS badge numbers. The names are usually common;
  • Scammers may know the last four digits of you social security number;
  • Scammers are able to make the caller ID appear as if the IRS toll free number is calling;
  • Scammers occasionally send bogus IRS emails to support their bogus phone calls;
  • Scammers will add background noise to simulate the sound of a call center;
  • Scammers will threaten the potential victim with jail time or suspending their driver’s license. Similarly, another scammer will call back shortly after hanging up and pose as the DMV or local police; and the caller ID may be masked to support their claims.

If you receive a phone call from someone claiming to be from the IRS, here are some simple steps you can take:

  • If you know you owe taxes, or you think you might, call the IRS at 1-800-829-1040. The IRS employees at that line can help you with a payment issue if there is one;
  • If you know you don’t owe taxes, or you have no reason to think that you owe any taxes, then call and report the incident to the TIGTA at 1-800-366-4484;
  • If you’ve been targeted by this scam, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. Please add “IRS Telephone Scam” to the comments of the complaint.

Taxpayers should also be aware that there are other types of telephone scams and solicitations that claim to be from the IRS, such as debt relief or lottery sweepstakes.

The IRS encourages taxpayers to be vigilant against email and telephone scams.  The IRS does not initiate contact with taxpayers via electronic media, including email, text messages or any social media source.  The IRS will always contact taxpayers with official correspondence sent through the mail.  People who receive such emails should not open any links contained in the message.  Instead, forward the email to phishing@irs.gov.

This blog brought to you by TaxLane, LLC, providing tax preparation and consulting services to individuals and small businesses.

Pittsburgh, Allison Park, Hampton, Shaler, Glenshaw.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.

Tax Season Opens Today!

time for taxesThe Internal Revenue Service will begin accepting electronically filed individual tax returns today (Jan. 31, 2014) to officially open the 2014 filing season.  The IRS encourages taxpayers to use e-file as one of the fastest way to receive refunds.

The delay in the opening date for individuals was required to allow the IRS adequate time to program and test its tax processing systems.  The annual process for updating IRS systems saw significant delays in October following the 16-day federal government shutdown.

“Our teams have been working hard throughout the fall to prepare for the upcoming tax season,” then IRS Acting Commissioner Danny Werfel said on December 18, 2013.  “The late January opening gives us enough time to get things right with our programming, testing and systems validation.  It’s a complex process, and our bottom-line goal is to provide a smooth filing and refund process for the nation’s taxpayers.”

The April 15 tax deadline is set by statute and will remain in place.  However, the IRS reminds taxpayers that anyone can request an automatic six-month extension to file their tax return.

This blog brought to you by TaxLane, LLC, providing tax preparation and consulting services to individuals and small businesses.

Pittsburgh, Allison Park, Hampton, Shaler, Glenshaw.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.

Numbers for use in 2013 Returns

New 1040 Return imageEvery year, the IRS adjusts many of the common tax deductions for inflation.  Among these are the standard deduction for each filing status, the personal exemption allowance, and the maximum allowable Earned Income Credit for qualifying families.  For the tax year 2013, the agency has also added a new tax rate for those who earn $400,000 or more in a single year.

Deduction limits for 2014

The most common deductions and credits used by taxpayers include the personal exemption, the standard deduction, and the Earned Income Credit.  For 2013, the updated amounts for these deductions and credits are as follows:

  • The personal exemption allowance will go up to $3,900 per person.  This is an increase of $100 over the previous tax year.
  • The maximum amount of Earned Income Credit available to families with three qualifying children will be $6,044.  This amount is available to couples who file a joint return and whose income falls within the middle of the income threshold for the credit.
  • The standard deduction for the 2013 tax year will also go up.  Married couples filing a joint return will be eligible for a standard deduction of $12,200, while single filers will be eligible for a standard deduction of $6,100.

2013 Tax Table Rates

Most of the tax rates are unchanged for 2013, but the IRS has added a higher rate for those who earn more than $400,000 each year.  The tax rates are as follows:

  • 10 % – for income of up to $17,850 for married couples filing jointly; $8,925 for single filers; $12,750 for head of household filers
  • 15% – for income of up to $72,500 for married couples filing jointly; $36,250 for single filers; $48,600 for head of household filers
  • 25% – for income of up to $146,400 for married couples filing jointly; $87,850 for single filers; $125,450 for head of household filers
  • 28% – for income of up to $223,050 for married couples filing jointly;  $183,250 for single filers; $203,150 for head of household filers
  • 33% – for income of up to $398,350 for married couples filing jointly; $398,350 for single filers; $398,350 for head of household filers
  • 35% – for income of up to $450,000 for married couples filing jointly; $400,000 for single filers; $425,000 for head of household filers
  • 39.6% – for income of $450,000 and over for married couples filing jointly; $400,000 and over for single filers; $425,000 and over for head of household filers

This blog brought to you by TaxLane, LLC, providing tax preparation and consulting services to individuals and small businesses.

Pittsburgh, Allison Park, Hampton, Shaler, Glenshaw.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.

The Sales Tax Deduction

Money percent sales tax

The sales tax deduction is one of the little-known deductions available to individuals.  Because taxpayers must choose between claiming the sales tax deduction or the state income tax deduction, most tend to claim their state taxes.  In some cases, though, claiming the sales tax deduction may result in a lower tax bill.

 What sales taxes can be deducted?

 The IRS allows taxpayers to claim any sales tax they pay in their home state for any reason.  All you need to do is keep records of all your sales tax receipts during the year so that you can provide documentation to the IRS in case of an audit.  This deduction can be particularly beneficial to those who live in states where there is no income tax.

 Claiming the sales tax deduction may even be advisable for those who could claim the state income tax deduction.  Since taxpayers won’t have to include their state income tax refund as taxable income if they don’t deduct the tax paid, using the sales tax deduction instead of the state tax deduction may save mo-ney in the long run.

 Claiming the sales tax deduction

 To calculate the amount of your sales tax deduction, you can either add up your total sales tax paid during the year or you can use the IRS sales tax calculator to approximate the amount of tax you paid based on your purchases.

 Because the sales tax deduction is reported on Schedule A, you’ll have to itemize your deductions in order to use it.  For most taxpayers, it’s only advisable to itemize deductions if your total deductions are higher than the standard deduction for your filing status.  Be sure that you calculate your return using both the standard deduction and your itemized deductions and then choose the method that gives you the highest refund.

This blog brought to you by TaxLane, LLC, providing tax preparation and consulting services to individuals and small businesses.

Pittsburgh, Allison Park, Hampton, Shaler, Glenshaw.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.

New for 2013: The Net Investment Income Tax

New for 2013: The Net Investment Income Tax

The 3.8% Net Investment Income Tax (“NIIT”) was passed as part of the 2010 Affordable Care Act.  It went into effect on January 1, 2013 and it applies to investment income only.  The IRS has released extensive proposed regulations detailing the application of the NIIT.  The basics are below.

Does the NIIT apply to your investment income?

The big question is: Will you have to pay the NIIT on your investment income?  The tax applies when taxpayers’ modified adjusted gross income (“MAGI”) exceeds certain thresholds.

For 2013, the MAGI thresholds are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately, and $200,000 for all other filers.  To find out if you are subject to the tax, you can calculate your MAGI by adding your earned income and your investment income.  Deduct the appropriate threshold from this total and then compare it to your net investment income.  The 3.8 percent NIIT will be due on the smaller amount.

Paying the Medicare surtax – Tax Preparation

Taxpayers who are subject to the tax must complete Form 8960 “Net Investment Income Tax – Individuals, Estates, and Trusts” and submit it along with their tax returns.  On the draft version of the form released by the IRS, individuals will compute their total investment income and then deduct applicable expenses to arrive at net investment income.

Individuals will compare their MAGI amount to the threshold based on their filing status.  If the MAGI amount is higher than the threshold, they will then compare it to their total net investment income.  They will pay 3.8% of the smaller amount as the NIIT.

This blog brought to you by TaxLane, LLC, providing tax preparation and consulting services to individuals and small businesses.

Pittsburgh, Allison Park, Hampton, Shaler, Glenshaw.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.

IRS Announces 2014 Filing Season Delay

Internal Revenue ServiceThe IRS announced today that the 2014 tax return filing season will be delayed 1-2 weeks to allow adequate time to program and test tax processing systems following the 16-day federal government closure.  The originally scheduled starting date for the 2014 tax filing season was January 21, 2014.  Based on a 1-2 week delay, the IRS expects to start accepting and processing 2013 individual tax returns no earlier than January 28, 2014 and no later than February 4, 2014.  For the complete announcement from the IRS, click here.

This blog brought to you by TaxLane, LLC, providing tax preparation and consulting services to individuals and small businesses.

Pittsburgh, Allison Park, Hampton, Shaler, Glenshaw.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.

Job Search and Moving Expenses

Job Search and Moving Expenses

Many taxpayers are unaware that they may be able to deduct the costs of searching for a job or moving to start work for a new employer.  The IRS allows taxpayers to write off their reasonable moving expenses under certain conditions, as well as the necessary expenses involved in searching for employment.  However, in order to receive the deductions, taxpayers must meet certain qualifications as to the types of costs they claim and the reasons for their relocation.

Deducting job search expenses – Tax Preparation

The primary qualification for claiming job search expenses is that the costs must be associated with searching for employment in the same line of work that you’ve had in the past.  You cannot deduct costs associated with changing careers, job hunting in an entirely different field, or searching for your very first job.  If your job hunt is for a job in your previous field, you can write off your mileage costs for travel to job interviews, the cost of printing resumes, the postage for mailing out written applications, and even the travel expenses if you have to attend an interview in another city.

In order to claim job search expenses, you must itemize your deductions on Schedule A.  According to the IRS, these costs are classified as “miscellaneous deductions”, which means that your total deduction will be limited to the amount that exceeds two percent of your adjusted gross income (AGI).

Deducting moving expenses – Tax Preparation

In order to claim moving expenses as a tax deduction, you must be relocating for the purpose of employment.  You’ll also have to meet two tests: the distance test and the time test.  First, your new job must be at least 50 miles farther from your old home than your old home was from your old job.  As an example, if you had to drive 15 miles from your old residence to your previous job, your new job must be at least 65 miles away from your old residence to meet the distance test.

Moving expenses must also meet a time test.  The time test states that you must work full-time at your new job for at least 39 weeks after the move.  If you work for yourself, this period is lengthened to 78 weeks for two years after the move.  Because of the time test, you may have to wait until the following tax year to claim the moving expenses.  These costs are calculated on Form 3903 “Moving Expenses” and deducted on the front page of Form 1040 as an adjustment to income.

This blog brought to you by TaxLane, LLC, providing tax preparation and consulting services to individuals and small businesses.

Pittsburgh, Allison Park, Hampton, Shaler, Glenshaw.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.

Casualty Losses for Natural Disasters

Natural Disaster

According to the IRS, taxpayers can claim casualty losses from all kinds of natural disasters, including earthquakes, volcanic eruptions, tornadoes, hurricanes, and floods.  In general, the criteria for claiming a casualty loss as a tax deduction is that it must be a “sudden event.”  Because most natural disasters meet this standard, taxpayers are generally able to write these costs off on their taxes.

What are casualty losses?

Put simply, a casualty loss refers to a loss of property for which you do not receive insurance reimbursement.  As an example, if your home is flooded during a natural disaster, your insurance policy may only cover a certain amount of it due to deductible or coverage limits.  In this case, the excess amount of the loss for which you are not compensated would qualify for a casualty loss deduction.  You can also take a casualty loss if your insurance company denies your entire claim.  The IRS does not require you to explain why the claim is refused in order to claim your loss as a deduction.

IRS rules for claiming a casualty loss

The IRS does have a few stipulations that apply to claiming a casualty loss.  For example, the amount of the loss is limited to amounts over $100 per event.  This means that if you qualify for the deduction, you’ll have to subtract the first $100 of damage from your loss amount before claiming it.

Another IRS requirement for casualty losses is that the total must be more than 10 percent of your adjusted gross income (AGI).  You can find this amount for the current year by totaling up your received income and then subtracting any of the applicable deductions on the front page of Form 1040.  The amount left over will be your adjusted gross income.  As an example, if your AGI is $20,000, you’ll only be able to claim casualty losses that exceed $2,000 in total.

Claiming a casualty loss for a natural disaster – Tax Preparation

Form 4684 is used to list and deduct casualty losses from natural disasters.  Taxpayers list the damage amounts on the form and then carry the total over to Schedule A.  These losses are considered “miscellaneous deductions” and can only be deducted on Schedule A.  Because itemized deductions may not offer as large a tax benefit as the standard deduction, it would be wise for taxpayers to calculate their return using their total itemized deductions, including casualty losses, and then compare it to the result if they use the standard deduction.

This blog brought to you by TaxLane, LLC, providing tax preparation and consulting services to individuals and small businesses.

Pittsburgh, Allison Park, Hampton, Shaler, Glenshaw.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.

Tax Effects of a Home Foreclosure

Home Foreclosure

If you’re facing a home foreclosure, you are probably already concerned about your financial future.  However, in some cases, you may find that your foreclosure comes with an unexpected problem: a tax bill.  Some situations may result in a taxable gain that may cause you to owe additional tax to the federal government with your return.  It’s important to understand when your foreclosure could trigger a gain and whether you’ll qualify for any tax exclusions.

Non-recourse loans versus recourse loans

First, you’ll need to determine the type of loan you have on your property.  In general, most home mortgage debt is financed with recourse loans.  With a recourse loan, a lender has the right to pursue you personally for any debt remaining after foreclosure.  If you are fortunate enough to have a non-recourse loan, the lender will not be able to pursue you for any additional debt owed after the foreclosure.    

Tax implications of a foreclosure

If your property is guaranteed with a recourse loan and you go through a foreclosure, the lender may decide to forgive the additional debt you owe on the loan.  Lenders will sometimes do this to clear your account off of their books.  In this case, the IRS may view the canceled debt as taxable income and require you to report it on your return.  If this situation applies to you, you’ll receive a Form 1099-C at the end of the year from your lender with the total amount of your canceled debt, which then must be reported on your return.

In a few instances, you may also face tax implications on your foreclosure with a non-recourse loan.  For example, if the value of the loan balance exceeds the amount you originally paid for the property, the excess may be considered as a taxable gain.  The good news is that the IRS allows taxpayers to exclude up to $250,000 of any capital gain from foreclosure from income tax if the property was the primary residence.

The one major exception to this rule involves bankruptcy.  If you’re going through a foreclosure and you’re in bankruptcy, the IRS will not require you to include any of the gain as taxable income on your return.

This blog brought to you by TaxLane, LLC, providing tax preparation and consulting services to individuals and small businesses.

Pittsburgh, Allison Park, Hampton, Shaler, Glenshaw.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.